Is It Really Possible To Fail Your Way To The Top?

Something stinks. Pretty soon the new regulators (and yes, they will probably be Federal) will have to don gas masks just to go to work. Between the Bulge Bracket failures, Madoff and whatever comes next, It’s becoming embarrassing to be in the Securities Industry. Are we, as an industry, really as f***** up as we appear?

And then there is the Regulation. Or lack of it. Something stinks here too. But in this author’s thinking, the public – and certainly the Media, may have it all wrong.

In the rush to judgement and assign culpability (which is good and necessary)  a new poster boy has emerged: Christopher Cox, Chairman of the SEC.  He has has admitted “Failures” and begun an internal investigation of his agency. Ironically, it may be his honesty and integrity that is driving him to take the heat. As head of the SEC he could just dodge the bullet – deny responsibility for himself and his agency, could he not? Fat chance, right?  That dog could not possibly hunt. Or could it? Because THAT IS EXACTLY WHAT ANOTHER EQUALLY CULPABLE AGENCY IS DOING. And the repercussions, if unchecked, will be real, tangible; and a train wreck of massive proportions. 

And the Media – either by conscious omission or a failure to understand the situation, is participating or being duped. We do live in an age of soundbytes, but the problem our nation is facing – as the perpetrators of a world wide financial debacle  -  require a deeper focus.  DESERVE a deeper look.

Let me make this plain. And for all journalists who read this, do your own investigation. Call ANY broker dealer in the country – any one, at random -  and verify. Here it is: The FINRA (The Financial Services Regulatory Authority) oversees broker dealers, for all practical purposes. Not the SEC.The SEC is the grand overlord, with the potential of metting out criminal punishments to wrongdoers – and overseeing every aspect of the united states securities laws. But the agency with the ACTUAL responsibility for DIRECT oversight of Broker Dealers is The FINRA. Ask anyone in the industry, from the brokers themselves to the owners of firms.

This is not simply semantics. Here’s why:The FINRA is charged with oversight. Broker Dealers report to the FINRA on a regular basis. They are audited by the FINRA on a regular basis. Every single business that a Firm wishes to engage in must be approved by the FINRA. Every change in personnel must be approved by the FINRA. Every change in ownership or business line or even every advertisement must be approved by the FINRA. Every email in a firm is tracked, supervised, and ultimately reported to the FINRA, by FINRA registered Supervisors. Every enforcement action at a broker dealer begins with the FINRA. Fines are levied by the FINRA, and Paid to the FINRA. Every Firm has dealings with the FINRA on a regular day to day basis.

Please consider: All of the recent bankruptcies which fomented the largest financial crisis in world history occurred at: you guessed it, Broker Dealers. Only AFTER the failures did the bulge brackets fall under the direct purview of the Treasury.

The Financial Debacle Began With Broker Dealers. And ALL Broker Dealers were directly regulated by the FINRA. Nobody else.

Yet the FINRA has somehow remained mysteriously in the shadows, with narry a comment -  while the SEC slowly boils.

But those days are over. There will soon be a combined organization that oversees the entire financial structure. The FINRA will soon be a memory. 

And now, to lead us in these uncertain times, President Elect Obama has appointed a new leader to head the SEC. That leader – is the current HEAD of the FINRA. That’s right – the individual who lead the consolidation and policy focus of the FINRA, who’se policies lead to the largest failing in regulatory history. And the Irony, in this new environment, is that there will be further regulatory consolidation.

So where did the failure to regulate occur? Certainly at the SEC. But just as certainly, and with a much greater actual effect – at The FINRA. And the scrary thing is that there is One Overriding reason that regulation failed as of late (of course there are many others too). But recent failings can be distilled down to Industry Focus. You see, The FINRA is a new entity, which came into being last year. But don’t be mislead; it is the new name for the newly combined NASD and NYSE regulatory bodies. The NASD absorbed the NYSE regulatory function in a merger/consolidation that was designed to simplify regulation. The problem is that the “merger” took a huge amount of resources to accomplish. And part of the way it was accomplished was to get a vote of the membership to allow the merger. Most members of the NASD, on a per capita basis, were “small firms”. These were the votes that were needed to affect a merger. And the ultimate result of the merger was a grand redirection of focus AWAY from the actual business of regulation – and toward the consolidation effort.  IN THIS WINDOW, THE BIG FIRMS WERE ALLOWED TO RUN AMOK, UNCHECKED AND UNABATED. The resources to supervise them did not exist due to the practical realities of the merger.

“Say Hello To The New Boss… Same As The Old Boss”
- Won’t Get Fooled Again, The WHO

Beyond the conflicts and political issues, beyond the revolving door policy for execs at the NASD and the big firms, beyond the huge salaries at stake (the head of FINRA makes a $4 Million Salary, whereas the SEC head makes some 200 Thousand, to put things in perspective), there was the real problem of people and resources. And those resources were focused sqarely on the shoulders of the small firms and the combination – and the Big Firms were given an extended “pass”. I doubt anyone would have believed for a second that the firms would engage in the sort of destructive enterprise that it turns out they did engage in…It simply beggars the imagination. Yet it is a fact that not a single “Big” firm was told to shut down for thirty days, or to take closing orders only, or ordered not to add any new accounts for the remainder of the year, etc – punishments routinely metted out to small firms.

So where was the oversight? The Agency charged with oversight – the FINRA  – was oblivious; focused on getting it’s own house in order post merger. See it’s no problem to get financials from a two person shop. But it is a wholly different effort to get them from a Goldman Sachs – with layers of management all protected by in-house counsel put there to protect firm interests.

And so by choice, the regulator chose to pursue small firms for small ascertainable goals, easy pickings, as it were -  and left the Big Boys to their devices.  Fomenting the largest financial crisis in world history. Necessitating a total re-write of Regulation as we know it.

Why This All Matters Right Now

And now, to lead us in these uncertain times, President Elect Obama has appointed a new leader to head the SEC. That leader – is the current HEAD of the FINRA. That’s right – the individual who lead the consolidation and policy focus of the FINRA, who’se policies lead to the largest failing in regulatory history. And the Irony, in this new environment, is that there will be further regulatory consolidation.

I believe the head of the FINRA is a highly capable person. Well liked and well respected, both personally and professionally. But so was  Bernard Madoff.

I humbly suggest that individual – though clearly highly capable – is nonetheless responsible for a massive mis-allocation of resources, and a failure to do the job required. And given the severity of the ramifications of that failure, that individual should share in the responsibility. Christopher Cox, is not alone in this world, though he would seem to be. It is high time, in the interest of JUSTICE and in the practical imperative of creating regulation that WORKS that responsibility be distributed amongst the parties responsible. We cannot afford to promote failure at this particular moment in history. Partcularly the very falure that got us into this mess in the first place. Far too much is riding on it. The entire world is looking to the United States for reasons to trust in us, at a time when regulation seems to have failed mightily. The regulatory counterparts in other countries understand where the true responsibilities lie. We cannot afford to insult their intelligence when the stakes are so high.

The Road to Hell is paved with good intentions. At some point, we must look at RESULTS and not intentions for guidance. And we must take an honest look at responsibility, no matter how much we personally like someone and respect their work ethic. The failures are real. Millions of people have been hurt. Most will not recover. And we are entering a new age where the hedgemony of the United States and the Dollar may even be in question. Just like the election of the President – where we saw a popular refferendum on an entire administration – we cannot allow the new regulatory regime to be an expansion of an old and proven failed model.

Please comment.

What’s that smell in this room? Didn’t you notice it, Brick?
Didn’t you notice the powerful and obnoxious odor of mendacity in this room? 
- Big Daddy, in Cat On A Hot Tin Roof by Tennessee Williams

In the rush to judgement and assign culpability (which is good and necessary)  a new poster boy for failed regulation has emerged: Christopher Cox, Chairman of the SEC. He has has admitted “Failures” and begun an internal investigation of his agency. Ironically, it may be his honesty and integrity that is driving him to take the heat. As head of the SEC he could just attempt to dodge the bullet – deny responsibility for himself and his agency, could he not? His collegues have done so and worse. 

But while Cox does bear some blame, at least he is attempting to stand up and correct an organization gone wrong. Which is a lot more productive than his colleagues are doing. Others are readily accepting his admissions as if all problems were truly his and his alone, while publicly endorsing those whom they say will now do a better job. 

It is an ugly irony that is indicative of the roots of the true problem.   Arrogance and unaccountability are not virtues in a Public Servant. In fact they are anathema to the functioning of an open society, and it is only in rueful hindsight that we become aware of just how deep the rabbit hole goes. Case in point, former SEC Cheif Arthur Leavitt…He took over the SEC in the mid 1990’s and stayed until 2001. 

Under Mr. Leavit’s Direct Watch:

1. The largest firms on the street were buying mutual funds YESTERDAY WITH TODAYS NEWS, abusing an administrative loophole unavailable to retail investors  . Cost to Mom n Pop Investors? Multi Billions.
2. The largest firms on Walls Street illegally Day Traded Mutual Funds and further wreaked havoc on the Investments of millions of Americans.
3. The largest firms on the Street began issuing bogus research reports, lying straight faced to the American public about the companies such as Enron, WCOM, etc
4. The SEC flat ignored tips and reports of wrongdoing – In 1999 for example, a tip was sent to Leavitts SEC that Bernard Madoff was creating financial statements and claiming huge gains that did not exist… Leavit’s staff ignored it

A Common Element: 

In 3 of the four abuses cited, the common link is HEDGE FUNDS.  Regular American Investros were not allowed to put in late mutual fund trades nor were they allowed to rapidly buy and sell mutual Funds.  Cannary Capital was the largest abuser and there were many more who were allowed to do what they would; Bear Stearns for example. And Bernie Madoff’s abuses were with his hedge fund not his Securities firm, once again showing a complete lack of regulation in the hedge fund industry.

And A Common Element In Discovery 

All of these horrific frauds were detected and stopped by investigations done outside of the SEC and FINRA.  In each case, the bad acts were found and punished by Elliot Spitzer or other District Attorney offices or the FBI. Sure, Spitzer liked the court of Public Opinion and had his own issues. But where was Mr. Leavitt in all of this? Can he really say that he didn’t know?

What Kept The Regulators So Busy That They Missed The Obvious?

So what exactly were Leavitt and Pitt and Donaldson doing all those years?  Well for one, they all spent a great amount of time and energy trying to ‘consolidate’ the vast sets of regulatory eyes out there.  They all pushed for the end of a  3 tier regulatory structure that would have provided three sets of eyes on Firms such as Lehman, Bear and Merrill and instead thought it would be better if ther was only one Self Regulator with SEC oversight over them.

 Let’sbe blunt here.  Under Leavitt th American Investor was defrauded to the tune of hundreds of BILLLIONS and that was when the NYSE and NASD conducted same year audits and the SEC also conducted Audits.  How and WHY in the world would one think that one SRO wold be better when his staff faled in the above 4 mentioned matters with double the number of regulatory eyes? Pitt and Donaldson even wrote  a full page op ed peice in the Wall Street Journal extolling the virtues of their consolidation plans!!!

Ultimately the consolidation effort took necessary resources away from the real tasks of regulating, and set the stage for the larger abuses. In this environment, regulation began to focus on the low hanging fruit – the ;late filing of a report; the late time stamping of a trade ticket; the failure of a rep to update his U4 in timely fashion. Ultimately, the tough regulatory row to hoe – the discovery and prosecution of the shenanigans at the Bulge Brackets – was all but dropped in favor of an effort to consolidate authority and to hit the small firms with their rule based violations. Ultimately the failure of this policy was the focus on administrative issues at the small firms, while failing to regulate the customer harming frauds purpetrated by the Bulge Bracket firms.  

In hindsight, entire endeavor to shore up regulatory powers into a single entity can be seen as a monumental failure. A  gift of fire that continues to burn.

The Arrogance Of A Failed Policy

But it doesn’t end there – at simple failed policy and mis-alocated resources. No, Mr. Leavitt took it upon himself to criticize and marginalize any who might dissent, and anyone who did not believe in his vision of consolidated power. There were dissenters. But the dissenters never built an effective power base. And worse, some of them had less than clean hands. Nevertheless, the several dissent movements did represent the small firm – which Mr. Leavit would be well to be reminded is the vast majority of what makes up the Securities Industry – and in the aggregate, apparently accounts for very little in the way of Major Fraud.

Mr. Leavitt would do well to be reminded that the vast majority of what makes up the Securities Industry are so-called “Small Firms”, and in the aggregate, those “Small Firms” apparently account for very little in the way of Major Fraud.

Yet Mr. Leavit actually characterised the dissenters as the “rump of very tiny firms” . See it here for yourself. “In an interview with BloombergTV last month, former SEC Chairman Arthur Levitt characterized the FIA as a “rump group of very tiny firms” and criticized it for trying to stop the [consolidation] deal.  SEC member Annette Nazareth, who helped negotiate the deal, also took aim at the FIA and its desire to exercise member voting power.”

The Chairman of the SEC openly called the majority of firms under his purview – the small firms – the ass-end of the business. NICE.

And now, True to form, the same man who called the majority of small firms Asses, is doing whatever he can to throw Cox under the bus.

This smacks of the worst sort of cover-your-ass finger pointing and in-fighting to preserve personal priviledge. And it is truly unbecoming behavior in a Public Servant, particularly for someone charged with maintaining the Public Trust.

When can we expect Mr. Leavitt to publicly examine his own role in the fiasco that has become our regulatory matrix? When can we expect leadership that is accountable and unmotivated by personal agenda? And when do we begin to dismiss outright the comments of unrepentant destroyers of our financial system?

The entire WORLD would like an answer.

It is truly sad that one organization was allowed to do so much damage.

Many members have remarked upon Ms. Shapiro’s tremendous capabilities as an administrator and leader, as well as her overall likeability factor. Others, however, have been critical of the tone and focus of her administration, as well as her handling of the events which arguably lead to the Financial Crisis. But whether because of or in spite of her record, she is Obama’s appointee to head up and reform the SEC. So the SIPA asks you:  

This morning we sent out an update regarding developments with Madoff and also with regard to the SEC’s admissions of failure. We intended it to go out last night, but were given pause when we saw the leak of Obama’s pending appointment of Mary Shapiro to head the SEC. We thought about adding that to the update, but then decided against it. We figured the Industry would know soon enough, and would likely respond accordingly. The personal opinions of the SIPA leadership may be interesting to ourselves, but out charter is to tapp the zeitgeist of the financial services community at large. So we sat back and waited.

We didn’t have to wait long. Starting almost immediately we began to receive letters from members about the potential appointment – and they really do run the gamut. Several things are clear so far: Mary Shapiro has the respect of much of the financial services community. She is also well liked, personally as well as professionally. However, some members have claimed that she won’t get through the confirmation hearings, due to conflicts and partisan bias. Below are some of the short comments, followed by a summary of the gist of the others:

“  This is the blind leading the blind” 
“  I bet Mary has had this deal in place for months and that is why she has been so quiet” 
“  FINRA is over and everyone knows it..unfortunately, they may all be part of a new federal regulatory body”
“  The entire system is totally corrupt and my Congressmen is going to get an earful from me”
“  I think Mary is uniquely qualified to clean up the SEC mess”
“  How can they claim they are trying to reform regualtion and then hire the same old crowd to reform”?

Overall, I will note that there is a pattern with regard to the comments. There are several issues that keep coming up:

One: We keep hearing about the SEC. The FINRA is barely mentioned in the news. Why is this, when it is in fact the FINRA and not the SEC that directly supervises Broker/Dealers. Is there a Media bias toward the SEC? Or are the Pundits simply uninformed?

Two: Why is it that the FINRA, which is charged with regulating broker dealers, metted out punishment after punishment on small firms, while the Bulge Brackets were allowed to run amok, creating the largest crisis in financial history?

Three: While the FINRA was busy consolidating power into one SRO, the big firms were allowed to runn amok, suggesting a wonton disregard for the real duties of regulation. Small firms have reported that the consolidation has cost them money, despite the FIRA’s $35K Payout. Did the FINRA simply make a bad choice, insofar as priorities? Or is the very concept of Self Regulation, irretrievably flawed?

Five: Why is it that the FINRA has focused on fining small firms large amounts for administrative errors that do not effect the Public, whilst larger firms were allowed to run amok in ways that directly affected the lives of clients (ie Madoff stealing $50BL). Isn’t this a massive failing, dwarfing the SEC’s? 

But most importantly, in this author’s eyes, have been the letters that have raised the question – won’t this administrator, as head of the SEC, continue to deliver the same sort of performance that she has been delivering for years?  And then, I have some questions myself: 

This author asks: If the consensus amongst small firms is that they were thrown under the bus by FINRA, and that it was the FINRA’s job to regulate them, and that the FINRA approached this process with what is widely percieved to be a serious bias, won’t she do the same at the SEC?

More importantly, is it appropriate that the head regulator, having demonstrably failed in those duties, be promoted to a position of greater oversight?

How To Insult The American Public With A Smile On Your Face

Today the SEC Chairman Christopher proclaimed that “ The SEC Failed to Investigate and Probe Madoff”.  (Click here to read story).

While this might sound to some of you as a small act of contrition and public acknowledgement of his agency’s failings, this is really nothing more then a slap in the face of every American Investor and every decent Financial Advisor and Broker Dealer who has strived to be honorable and ethical in everything they do.

Let’s be brutally honest here: This is a systemic failing from the top of regulation to the bottom.  Madoff wasn’t a one time ponzi scheme that was started in a long island boiler room six months ago where the feds finally found out.  This was a ten year scheme in which both the SEC and the FINRA refused to investigate. 

Why?  Perhaps we should look at the Bear Stearns situation in which the Inspector General said the SEC was lax yet refused to bring charges against Bear Stearns and then even went so far as to drop all charges against them!!…Hindsight is 20-20 as they say…or maybe it isn’t? 

In 2005 Gary Aguirre of the SEC began investigating Morgan Stanly and its relationship with one Pequot Capital,. a Hedge Fund that had over 7 billion in assets and was run by the close friend of Morgan CEO John Mack. In 2005 Aguirre testified before the Senate Judiciary Committee regarding “Hedge Funds and Analysts: How independent is their relationship” But then Aguirre did the unthinkable:

He wanted to conduct an On The Record (OTR) with the CEO of Morgan Stanley, John Mack.  He was told NO WAY by every supervisor all the way up the chain, including one CHRISTOPHER COX .  A short time later Aguirre was fired. Later, he filed a wrongful termination suit and was vindicated in August 2007 by the inspector general.  Today this same person is claiming that his agency “failed” to investigate Madoff”?? 

“If A Bug Remains Un-Fixed For Long
Enough, It Becomes A Feature”

-Old Hacker/Programmer Addage

Would it have mattered if they did?  Based on past performance, the investigation would have stalled right around the time Examiners started asking for OTR’s with Bernard Madoff himself.  In fact, recent discoveries have found that Madoff kept two separate books for his Fund and may have given fake and or doctored books to the Examiners – but nobody ever required him to justify or prove his numbers.

The SEC is also responsible for allowing the merger of two regulators into a single regulator now known as FINRA.  In fact, the SEC was so brazen about wanting only one regulator that NASD spokespeople regularly commented that “the Chairman of the SEC has said that if we do not merge with NYSE regulation then he will step in and do something”.  For some reason the SEC wanted “streamlined” regulation that would take away two sets of Self Regulatory eyes and replace them with one. We see how well that has worked out now don’t we?

So here we are now several years down the road and Wall Street is a giant mess of unethical and criminal activity and we are supposed to feel good about Chairman Cox saying his agency failed?  This is like George Bush coming forward now and saying “Maybe I should have relied on different information regarding weapons of mass destruction”. 

So what? It’s too little, too late and quite frankly its insulting to those of us in the know who have been following this All boys Club on Wall Street for the last 20 years.  The time is now for a new Regulatory system and a new way of thinking.  Join us in demanding an overhaul of the SEC and a reorganization of Self Regulation.  Please join our think tank of Brokers, Financial Advisors, B/D owners and Financial Professionals who are seeking meaningful change ..not more of the same “look the other way when its Wall Street Elite” mentality.

Why Madoff will not be an isolated case

Over a year ago we questioned whether there was sufficient regulation of the Hedge Fund industry (click here to read).  In light of the Madoff Meltdown the important question brokers must be asking themselves now is not IF more regulation is necessary, but should one remove one’s clients’ money as soon as possible from the many managed accounts around the world.  I would say unequivocally the answer is yes to the latter. 

Madoff is not a single rotten apple in the bunch and the lone exception to the rule.  Rather, Madoff is a reflection of lack regulation and quite frankly negligence on the part of many of the various agencies who were entrusted to protect investors.  In August of 2007 Goldman and Bear each reported losses in proprietary hedge funds to the tune of $10 billion combined.  At the time we questioned why nobody was looking at these companies and more importantly, we were concerned that if the “best and brightest” minds on Wall Street are losing billions, what about all the main street American hedge funds”? 

The simple truth is that these hedge fund managers are desperate right now to retain investors and stop liquidations and redemptions of their funds.  One prominent Hedge fund manager told me last week “I had nearly a billion dollar fund last summer, and now I’m down to 375 million in assets - due to redemptions.”

These numbers are staggering to say the least and as a Financial Advisor you better be on your guard for Enron type of accounting in the next few months. Think about this for a second: The regulators allowed a “ponzi scheme” to operate for over 10 years at Madoff until Madoff  turned himself in and had his children call the authorities.

I’m going to say this again for effect; but hear what I’m saying:

Madoff turned himself in and had his children call the authorities.

In other words, this whole charade could have continued without anyone knowing for several more years.  More chilling is the obvious fact that in all likelihood, many hedge funds are not even being reviewed for the most basic of things like year end reporting, accounting and performance.  This is not to say that all hedge funds are frauds like Madoff, however we truly believe that the environment was right for abuses due to the lack of any basic oversight.  Unless your hedge fund can provide total transparency (which they very rarely do) we would caution brokers about the safety of their funds. 

Sadly, when the proverbial crap hits the fan, these hedge funds will close. Then the trial lawyers and the regulators will turn on the individual advisors and question why THEY didn’t due more due dillie on the fund or its managers. 

We would urge all Financial Advisors to immediately DEMAND complete transparency from any money manger or hedge fund in which they have recommended.  If they refuse to back up their performance numbers, show their holdings and provide complete accounting, its time to consider getting out of dodge quick.  Madoff will not be an isolated case. Remember, MADOFF TURNED HIMSELF IN AFTER 10 YEARS OF UNDETECTED FRAUD!  Quite simply, there has been no accountability nor regulation for so long that its hard to believe that other hedge funds didn’t cook the books and take shortcuts as well.

Bernard Madoff. The ultimate zinger. Just say the words: Bernard Madoff -the whole room goes deathly silent. What can one say? What the hell was he thinking? At a moment when the entire world is looking for a reason to trust the US financial system, in rides Bernie Madoff. Former Chairman of the Nasdaq. Treasurer of Yeshiva University. Head of the Business School!!! In an admitted Ponzi Scheme bilking investors almost as much as Enron!  I want to hide under my desk and pray that no more bad news comes out. Hands over my ears, chanting there’s no place like home, there’s no place like home!

But man has he done some dirty work. And I think he’s just about single handedly put the final Nails in the coffin of Self Regulation. Where was the SEC in this mess? Where was the FINRA? Since 2005 he’s been running a HUGE scam. An obvious scam! The SEC was even put on notice! How could the FINRA fail to pick up on this? How could the FINRA just sit there and with all earnestness prosecute firms and reps for failure to take continuing education on a timely manner (a $40,000 fine). Delivery of a focus report two days late (a $20,000 fine). Failure to timely update a U4 ($15,000). To the tune of $1.5BL that the finra has racked up over the last few years. All the while closing their eyes to the MAJOR CORRUPTION that was all around them!!

And last week the FINRA announced it is laying off 10% of it’s most knowledgeable staff.

Here’s what I think is happening: the FINRA sees the writing on the wall. It has heard the bell tolling, and it has asked for whom the bell tolls. The bell has answered. And yesterday it plain cracked. Thank you Bernard Madoff, for ending the question of whether self regulation works or not.

And now the entire industry is going to suffer as it gets legislated to. Sooner or later we’re going to have a huge bureaucracy of non-financial industry folks dictating policy to the financial community. And the chances are strong that the over-issued, make-work regs of the recent past, are nothing compared with what is coming our way.Imagine when congress starts to promulgate regulation!

Let this author make it really clear: we are unlikely to see reasonable reform of the regulatory structure. We ARE likely to see a whole new regulatory regime created from whole cloth.

There is the chance, the slim chance, that our new regulatory matrix will be based on or similar to the FSA (Financial Services Authority) regime, which this author can say, from personal experience, is streamlined, logical, accountable and compartively easy to comply with. But let’s

be real. When has congress EVER created something elegant, simple and streamlined. Particularly when forced to do so under duress?

If you are not a member of the SIPA you need to join right now so that your voice can be heard. Your voice and thoughts are needed. Sweeping regulatory changes ARE in the offing. And the SIPA intends to be at the forefront of this process and do everything it can to make sure that what may come is a better, easier, workable and sustainable solution.

But we need your help.  In fact, we need every single registered person in order to help shape a regulatory regime that is effective, reasonable, and supportive of the goals and work of the registered person – as well as a builder of confidence in the US financial markets. Join right now and take an active role (its free) and make yourself heard

Be heard – not hearded!   

The Fall of Madoff should come as no surprise.

For many years now we have always thought of Ponzi schemes as something that was run out of boiler rooms in Long Island and Boca Raton that would prey on the elderly and unknowledgeable.  Today the FBI has announced that one of the most respected names on Wall Street has been arrested and charged with fraud that could approach Enron sized proportions.  Click <<HERE>> for story

While the rest of Wall Street is shocked by this sudden collapse of yet another supposed “Rock” of Wall Street, I and many of the followers of the small firm movement and Broker’s rights advocates merely shrug and say “ I told you so”

As you read this troubling story on Madoff, note the common theme that is present in the stories behind Lehman Brothers, Bear Stearns, and Merrill Lynch. Can you figure out what is missing from these reports and indictments?  I’ll give you a hint: It’s the same thing that was missing when the Attorney Generals of NY, and Massachusetts went after the large firms on Wall Street for Mutual fund abuses.  It’s the same thing that was missing when these same states went after the elite firms on Wall Street for issuing bogus research reports to the public in order to inflate stock prices. 

What’s missing?
Find one reference to the NASD, NYSE or the Combined FINRA self regulatory body.  Heck, there is barely a reference to the SEC in these cases except to say that they would also be filing charges which is akin to the local police saying they broke up a large drug cartel and afterward the FBI says they were filing charged too.

The fraud in these cases is so easily detected yet the main to regulatory bodies have spent the greater part of 10 years making sure small firms were punished for trade reporting violation and more importantly WSP failures.  Here is the latest harsh discipline that FINRA dished out to “Protect investors” (please note sarcasm) http://www.finra.org/web/groups/industry/@ip/@enf/@da/documents/disciplinaryactions/p117408.pdf

How embarrassing is this monthly report? The largest firms on the street are stealing from Americans but we are supposed to believe everything is fine because a “broker from California was fined $15,000 for failing to timely update his form U-4” .  Sad and embarrassing to say the least.

The purpose of this is not to say “I told you so” but to show how absurd the idea of FINRA and supposed Self Regulation is.  We believe its time to throw out the old lot and start over. Fraud after Fraud has been committed on the Street yet its always uncovered and punished by Law enforcement agencies.  I don’t want to hear any hog wash from the talking heads at FINRA that this wasn’t there jurisdiction.  Madoff had a hedge fund that executed its trades and held its account through its FINRA member firm.  Don’t you think a simple look at one of the larger accounts would have raised a couple questions like “Hey Mr. Madoff, we’ve noticed your hedge fund account comes in with 5 million dollars but immediately wires it right out…is this a possible AML problem”??

Like wise with Lehman, a simple examination should have prompted questions from examiners such as “ We’ve noticed your holding a couple trillion in mortgage derivatives for some of your hedge fund accounts…can you show us a concentration report and risk management report to ensure that your regular customer accounts will not be at risk”??

At a time when our Auto Industry is on hand and knees begging for a measly 15 billion dollars, the Financial Industry now has a single fraud that may cost as much as 50 billion dollars!  While the Auto makers are guilty of poor management and foresight, they are not guilty of fraud.  Isn’t it interesting that Congressional leaders are asking the heads of these Automakers to step down due to mismanagement?  While I am not calling for the heads of the regulatory bodies to step down, I think in light of the constant FRAUD on Wall Street, something has to change because quite frankly, I don’t think anyone is surprised anymore that the largest firms on the Street are basically unregulated.